Analysts greet Total's planned investment reduction with scepticism

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Guy Bentley

Analysts have greeted Total's announcement of a fall in organic capital expenditure with a note of caution.

Nomura analyst Theepan Jothilingam said:

There will no doubt be some skepticism that capital intensity can be reduced but a headline fall in group capex to $24-25bn [£15-15.6bn] underpins Total as the name that offers in principle the greatest change in FCF within EU Big Oil, in our opinion"

However, Yesterday's strategy update was lacking in detail regarding the position of shareholders, as reported in CityAM this morning:

Total did not elaborate on where the dividend could stand, only saying the group would stick to a policy of “competitive returns to shareholders.

On the exploration and production side Total remain on track with 95 per cent of target production currently under development. From 2017 Total intends to change course to a "Value of Volume" strategy.

Total's decision to increase investment in exploration including high-risk projects was greeted with optimism by analyst Oswald Clint of BernsteinResearch, who believes this is a cause for optimism:

It is the leading frontier acreage holder amongst the Majors and will drill 15 more high impact wells in 2013, so potential remains for exploration upside.

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TOTAL's outlook supports our view that current oil price forecasts are too negative. We continue to argue that equities that price in $90/bbl Brent are too bearish.